ECB cuts rates for seventh time

The European Central Bank cuts its facility rate by 25bps to 2.25% yesterday as had been widely anticipated. This marked the seventh cut in a row from the ECB since it started its rate-cutting cycle in June last year, with a cumulative 175bps of cuts so far. Christine Lagarde was focused on the potential fallout from tariffs and their impact on growth, saying that the downside risks to the outlook had increased.

The US is looking at imposing new levies on any Chinese-built of owned ships docking at its ports as the trade war between the two largest economies continues to ratchet up. The fee charged would be dependent on the volume of goods being carried per voyage and would go into effect in six months’ time. The move is somewhat softer than the initial calls to impose a flat USD 1mn charge per port called at but still signals what will likely result in another extra charge for US consumers.

The Central Bank of Egypt cut its interest rates for the first time since 2020 at its second meeting of the year yesterday, with a 225bps move lower. This took the benchmark overnight deposit rate down to 25.00%. With headline CPI inflation down to 13.6% y/y in March the bank had significant headroom to cut rates even as concerns around the global tariffs prompted some caution and it also noted that the adjustment to government fiscal subsidies had also slowed the disinflation path.

The Turkish central bank hiked its benchmark one-week repo rate to 46.00% yesterday, up 350bps and reversing some of the rate-cuts that had been implemented in recent months. The situation in Turkey was complicated by the market fall-out post the arrest of an opposition politician in March and the TCMB had already made an emergency intervention on March when it hiked the overnight rate by 200bps and had started favouring it over the one-week repo. Yesterday’s move brings the benchmark rate in line with the de facto reality. The overnight lending rate was raised 300bps from 46.0% to 49.0%. In its statement the bank noted the ‘recent developments in financial markets’, and also drew attention to the ‘Potential effects of the rising protectionism in global trade on the disinflation process.’

The US saw 215,000 initial jobless claims in the week to April 12, down from 224,000 the previous week. This was the lowest reading since early February and came in lower than the predicted 225,000. Continuing claims stood at 1.885mn in the preceding week to April 5, up from 1.844mn the previous week.

Headline CPI inflation in Japan slowed to 3.6% y/y in March, down from 3.7% in February, though core inflation, stripping out fresh food and energy, accelerated to 2.9%, the highest since last March and up from 2.6% in February. Rice has been a key driver of price growth in Japan recently and was up 92.1% y/y, the fastest pace since at least 1971.

Today’s Economic Data and Events

No major data releases scheduled today with many markets closed for the Easter break

Fixed Income

• The rally in USTs faded at the end of a shortened trading week with yields on the 2yr rising 3bps to 3.7982% and the 10yr up 5bps at 4.3249%.
• Yields on German bunds fell as the ECB cut rates, with the 2yr down 6bps to 1.682% and the 10yr dropping 4bps to 2.469%.

FX

• The dollar index closed flat yesterday, belying some of the wider moves against notable currencies. EUR closed down 0.3% against the greenback as the ECB cut rates once again, dropping to 1.1365, while GBP was up 0.2% to 1.3266.
• The NZD was a notable gainer as it added 0.7% on its seventh straight day of gains, taking it up to 0.5973.

Equities

• Equity markets in the US were mixed yesterday with a 0.1% gain in the S&P 500 but a 0.1% fall in the NASDAQ and the Dow Jones closed 1.3% lower.
• Locally the DFM added 0.2% while the ADX closed flat. Saudi Arabia’s Tadawul closed down 0.7% on the day but was still up 0.4% over the week.

Commodities

• US pressure on Iran and some covering of shorts prior to the long weekend saw a robust rise in global oil prices yesterday, with Brent futures closing up 3.2% to USD 68.0/b, while WTI added 3.5% to USD 64.7/b.